Indian buyers often taken for ride by developers sans real estate regulator

The Indian buyers are often taken for a ride by developers, as there is no regulator in the real estate industry. A delay by six months to a year is considered normal and flouting a few rules is the norm. Then there are issues like building plans being changed midway during construction, or common facilities falling short of expectations.

Colonel R S 'Pickles' Sodhi, the managing director of Alpha GCorp, says: "The Indian real estate industry is plagued by issues like diversion of funds to other projects and one-sided contractual terms. The most common problem facing property buyers today is project delays that can stretch to several years, as developers are often short on funds. Increasing construction costs have affected their margins and most developers bank on project sales to generate funds."

When projects don't sell as anticipated due to economic slowdown or any other reason, they tend to get delayed or abandoned altogether. While most builders have a penalty clause for delays, it is only a fraction of the EMI for home loans or about Rs 5 per sq ft per month.

However, in one of the most significant rulings in the Asian real estate industry, the Urban Redevelopment Authority (URA) in Singapore announced significant changes to the Housing Developers Rules (HDR), which will enhance transparency in the real estate industry and promote good practices and professionalism among developers.

Nicholas Mak, the executive director of SLP International Property Consultants, says: "Last April, the Singapore government proposed some amendments to the Housing Developers Rules and sought feedback from the public. On April 18, 2012, these amendments were put in the gazette as the new rules. The rules are to heighten the transparency in the property market and to give further protection to homebuyers."

From May 18, developers in Singapore will have to provide accurate information, show proof of their track record and seek consent for changes in a unit from homebuyers under a new rule to protect consumers. Among the mandatory information developers are required to disclose to potential homeowners include a drawnto-scale location plan and site plan of the project , unit floor plan and a breakdown of a unit's floor area by the various spaces like bedrooms, balconies and bay windows.

Developers will also have to provide information on at least one completed project they have built to homebuyers before the issue of the option-to-purchase form. In addition, developers will have to obtain the homebuyer's consent should there be changes to the layout of the unit concerned. Existing controls on advertisements in newspapers and sales brochures will also be extended to advertisements on websites. Advertisements on websites must not contain any false or misleading information to enable homebuyers to make better informed decisions when buyng a house.

Clearly a model to emulate for the Indian real estate industry!

Arjun Thapar, an architect, says: "With the number of real estate players now huge, one hopes that competition will also help in improving the situation. But unless stuff like delays , wrong promises, poor quality of construction , etc, can be objectively and tangibly documented, plenty of confusion will prevail, much of it to the delight of the builders and heartburn of the customer."

Some of the key issues that he points out where a buyer is taken for a ride almost always include the following:

Facilities should be in proportion to the dwelling count. Where standards like one pool for x number of houses does not exist, the template could at least capture the sizes or areas of the clubs, pools, tennis courts, etc, so that buyers may compare it. Sizes of clubs, restaurants, and recreational facilities are woefully inadequate in almost all projects.

Quality of construction demands attention . An end user complains that his house in Indirapuram has glass panes falling off from the windows because of poor rubber gaskets and aluminium beadings. Apart from being a terrible irritant for the occupant , it is a major security hazard, if you have glass panes falling from higher floors upon pedestrians below.

A prominent builder is putting cheap Chinese doors made of fibre board having a thin laminate skin on top in a project, which may fall apart in six months. These doors are fitted a few days prior to hand over, so that they do not break or get ruined during the time of construction.

More elaborate standards are needed on the quality of stuff like doors and windows, toilet fixtures, etc. Several builders put bad quality fixtures ; in effect, you only buy the space, a shell, which will need to be redone once occupied. This results in tremendous wastage of money, time and material.

The 'track record' term, according to Arjun Thapar, is by nature a dubious one, given that they change the names of the company each time they launch! But, still, a template could be designed showing how many projects a developer has launched, started, finished, etc.

To summarize, the need of the hour is to protect the rights of the consumers while also ensuring that the developers are not harassed by too much of red tape.

A common complaint of developers is that the sector is already heavily regulated, and any further regulation will only add to the costs of getting things approved.

The need therefore is to have, firstly, a single authority at state and central levels to approve building projects.

What is needed is a structural reform. Today, every city and every state have their own rules, which are interpreted in their own way causing delays in project approvals and consequent cost escalations.